HSA/ACA and Retirement

[FireCat]

Greetings all, I am trying to figure out how I will navigate Retirement and Healthcare for my wife and I and was looking for a little guidance. We will FIRE in 16 months me 53 she 55 and will be living off my Pension and Tax Deferred accounts until her SS and Pension kick in at 65. We also will have one son in college for the next 4-5 years. Here are my questions.

1. Do I fund my HSA's out my pension income or can I just transfer it directly from my Tax Deferred 457 plan?

2. Should I get two separate HDHP because I think my wife might have more healthcare expenses than I will?

3. How does funding an HSA account reduce my MAGI as I am not spending that money just transferring it into another tax deferred account and/or funding it from my pension, but would still need those dollars to eat so would have to take the equivalent withdrawals from my 457 plan?

Thanks to all for your continued assistance.

 

[ziggy29]

You can not directly roll a 457 into an HSA as I understand it. You *can* do a one-time rollover from IRA to HSA, though that is subject to annual contribution limits (for joint filers this is $6550 for 2014 but $7550 for age 55+). So you'd have to first go from 457 to IRA, then IRA to HSA. Given that it's a one-time deal and counts toward the contribution limits, I don't know that this is worth doing unless you don't have other funds available to "seed" an HSA.

In reality, if you have to take out a larger distribution in order to fund an HSA, it comes out as a wash in the MAGI, assuming the pension is taxable. That's because it would reduce your MAGI from the pension income but would increase by the same amount of additional 457 withdrawals to pay current expenses. Have I understood the question correctly?

 

[Mulligan]

You can certainly contribute to your HSA via your pension income as that is what I do every year. I just write and old fashioned check once a year in full. The HSA does lower my income come tax filing time and I receive my tax deduction from the contribution at that point. I could bake it into my withholdings from monthly pension check, but I prefer to get a refund come filing season.


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[FireCat]

You can certainly contribute to your HSA via your pension income as that is what I do every year. I just write and old fashioned check once a year in full. The HSA does lower my income come tax filing time and I receive my tax deduction from the contribution at that point. I could bake it into my withholdings from monthly pension check, but I prefer to get a refund come filing season.


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Thanks for answering as that is what I thought I really get no benefit annually from contributing to an HSA if I need to make up those funds from my Deferred Tax accounts. I do see the other benefits from HSA's, however.


Thanks

 

[pb4uski]

Thanks for answering as that is what I thought I really get no benefit annually from contributing to an HSA if I need to make up those funds from my Deferred Tax accounts. I do see the other benefits from HSA's, however.


Thanks

True... the withdrawals from your tax deferred accounts is income and the contribution to the HSA is a deduction so the net impact on AGI, taxable income and taxes is nil. However, what you have done in effect is convert tax-deferred money to tax-free money for "free".